Indian IT stocks have slipped close to a four‑year low, leaving many investors wondering if 2026 could finally bring some relief.
Why the IT sector has struggled
After a strong run in 2020‑2021, when companies rushed to digitalise during the pandemic, the sector lost steam. The Nifty IT index fell more than 26% in 2022 and, despite modest recoveries in 2023 and 2024, it is down over 10% so far in 2025 – the second‑worst year in the past decade.
Cyclical factors
Most of India's IT revenue comes from the US and Europe. When inflation, high interest rates and recession fears hit those markets, big clients cut back on discretionary tech projects. This slowdown hit Indian exporters hard.
Structural factors
Indian IT firms have become very efficient. Cloud, automation and now AI let them do the same work with fewer people. While this improves profit margins, it also slows revenue growth because less labour means fewer billable hours.
AI – a possible turning point
Analysts agree that AI will eventually boost the sector, but the shift will take several years. Companies are now investing in AI tools, training staff and adding AI services to client offers. Early signs are appearing:
- TCS reports about ₹12,500 crore in annualised AI‑related revenue.
- Infosys and HCL Tech are seeing productivity gains of 40‑50% on selected workflows.
- Mid‑size firms are growing faster than large caps, according to several broker forecasts.
When AI moves from pilots to full‑scale deployments, larger deal sizes and new revenue streams are expected to open up, especially in the US and Europe.
2026 outlook
Recent quarterly reports show modest sequential growth for big IT firms (0.3% – 2.4%). Order bookings are up about 26% year‑on‑year, suggesting the pipeline remains healthy.
Revenue growth forecasts for FY27 range from 4% to 6% for large companies, with mid‑size players likely to grow faster. Margins may improve as AI‑driven productivity offsets rising wage costs.
Dividends of 3‑4% continue to provide a safety net for investors, while strong cash‑flow generation supports further investments.
Geographic focus
The United States still accounts for more than half of IT export revenue. Europe is growing slowly, and Japan offers a long‑term opportunity as outsourcing penetration there remains low.
Bottom line
Most analysts think the worst is over, but they stop short of calling it a sharp comeback. Expect steady, modest growth rather than the double‑digit returns seen in the pandemic years. AI is likely to expand the market over the next few years, giving Indian IT firms a chance to rebuild confidence.
Remember, this is just my perspective, not a prediction. Do your own research before making any investment decisions.